Week 1- Intro to Management Accounting

Question 1

Accounting definition

Answer 1

The process of identifying, measuring and communicating economic information to permit informed judgement and decisions by users of the information (American Accounting Association, 1966).

Question 2

Difference between management and financial accounting

Answer 2

• Management: provides information for managers of an organisation who direct and control its operation. (daily info) (internal)- forward looking
• Financial: provides info to shareholders, creditors and others who are outside the organisation. (annual) (external)- historical- backward looking

Question 3

The management cycle

Answer 3

1) Formulating long and short term plans (planning)- pricing, costing decisions.
2) Implement the plans
3) Measuring performance- variance analysis
4) Comparing actual to planned performance.

Question 4

Management accounting definition

Answer 4

The process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources.

Question 5

Management accounting body

Answer 5

CIMA

Question 6

Financial accounting body

Answer 6

ACCA

Question 7

Role of the management accountant

Answer 7

• Developing plans and analysing alternatives
• Communicating plans to key personnel
• Evaluating performance
• Reporting the results of activities
• Accumulating, maintaining and processing an organisation’s financial and non-financial information.
• A MANAGEMENT ACCOUNTING DOESN’T MAKE A DECISION BUT PROVIDES THE INFO TO THOSE WHO MAKE THE DECISION.

Question 8

Characteristics of useful information

Answer 8

• Accurate (not vital- in management accounting doesn’t need to be too detailed)- all about the impact on the decision.
• Relevant- to the problem
• Timely
• Understandable- presentation
• Comparable and cost-effective

Question 9

Purpose of information

Answer 9

Information provision should ultimately be aimed at achieving organisational objectives.
But:
- Objectives may be poorly defined
- Potential conflict of objectives
- Objectives may change over time

Question 10

Cost/Benefit Criterion

Answer 10

The cost of obtaining info should not exceed the benefit of possessing it

Question 11

Factors that increase the need for management accounting information

Answer 11

• Increasing complexity andsize of organisations- more onward takeovers
• Economy- interest rates- higher cost of capital - harder to open new stores
• Sustainable development
• Increased emphasis on quality
• Rapid development and implementation of technology
• World-wide competition

Question 12

CIMA code of ethics

Answer 12

• Integrity
• Objectivity
• Confidentiality
• Professional competence and due care
• Professional behaviour

Question 13

Integrity

Answer 13

• Straight forward
• Honest
• Truthfulness
• Fair dealing

Question 14

Objectivity

Answer 14

• Communicate unfavourable as well as favourable information.
• Refuse gifts or favours that might influence behaviour.
• True and fair value- not overstating profits for example.